Banks keeping lending rates high despite fall in CBK policy rate, says Bloomberg

Banks have failed to cut lending rates in line with the central bank policy rate, Mark Bohlund, Africa and Middle East economist at Bloomberg Intelligence says.

Bloomberg charts show banks have tended to raise rates whenever the Central Bank of Kenya (CBK) increases its benchmark rate but indicate relatively little correlation whenever the rate moves downwards.

Mr Bohlund says the poor transmission of Central Bank Rate (CBR) cuts into lower bank lending rates has also been noted by the CBK for a long time.

“This has at least partly been due to a lack of credit information sharing preventing banks from competing for each other’s clients by offering lower interest rates,” Mr Bohlund said in an email interview.

In May, the CBK slashed its rate by one percentage point for the first time in almost a year to 10.5 per cent although banks are still hesitant to transmit it to consumers.

CBK Governor Patrick Njoroge said the CBR was a very strong signal for banks to lower rates but the effect has not been passed on to consumers.

The rate was in June last year raised from 8.5 per cent to 10 per cent and up to 11.5 per cent in July 2015.